San Joaquin Valley Air Pollution Control District
To Cover Its Costs, It Recently Increased Permit Fees and Continues to Use Supplemental Revenue but Can Improve Consistency and Transparency for Certain Program Requirements

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the revenues and expenditures of the San Joaquin Valley Air Pollution Control District (district) and its implementation of certain program requirements.

This report concludes that the district’s stationary source permit fees are allowable and generate fee revenue less than its costs. To make up the difference the district lawfully uses revenue each year from other sources, including revenue from penalties, interest earned, and state and federal grants, to supplement its permit fee revenue. After projecting a $2 million shortfall for fiscal year 2014–15, the district sought, and enacted in April 2015, a fee increase of 4.8 percent beginning in fiscal year 2015–16 for the majority of its permits and an additional increase of 4.4 percent in fiscal year 2016–17. Although the district will need to continue to make use of its supplementary funding, it expects that the recent fee increases along with continued operational streamlining will enable it to balance its costs and revenues.

The district could improve the consistency and transparency of certain program requirements. Because of the role the district plays in issuing various stationary source permits, it can be named as a party in litigation under the California Environmental Quality Act (CEQA). To protect the district and its many regulated customers from the potential costs of CEQA litigation, the district requires a small number of permit applicants each year to provide the district additional financial security by signing an indemnification agreement and providing a letter of credit. Although the district has published a policy that specifies the circumstances under which permit applicants must provide indemnification agreements and letters of credit, in practice the district used its discretion to make the final decision of when to require these documents that sometimes varied from its policy and did not always document the rationale for its decisions. After we brought this matter to its attention, the district revised its policy indicating that it will conduct a case-by-case analysis for future projects and document its reasoning.